Daily Vecsignal - Banking Groups Say Senate Stablecoin Reward Fix ‘Falls Short’ Amid Deposit Protection Fears

 May 05, 2026 | VECS News

The United States Senate’s latest attempt to break the deadlock on crypto market structure legislation has backfired. A coalition of the nation’s most powerful banking trade groups declared on Monday that the proposed compromise on stablecoin rewards is insufficient, setting off new alarms about the safety of trillions of dollars in traditional bank deposits.

In a joint statement that included the American Bankers Association, Bank Policy Institute, and Independent Community Bankers of America, industry leaders argued that a last-minute fix by Senators Thom Tillis and Angela Alsobrooks fails to close critical loopholes . While the new language explicitly bans the payment of interest solely for holding a stablecoin, it allows for "activity-based rewards." The banks warn that this distinction will allow crypto platforms to simply rebrand interest as loyalty points, effectively offering unregulated savings accounts under a new name.

The core of the banking industry’s resistance lies in the risk of "disintermediation"—the mass exodus of cash from local banks to blockchain networks. The groups reiterated Treasury estimates suggesting that up to $6.6 trillion in deposits could be at risk if yield-bearing stablecoins become widespread . Community bankers specifically fear that if customers move their cash to stablecoins offering 5% yields while traditional savings accounts hover below 1%, the banking sector will lose the capital necessary to fund mortgages and small business loans. "Every deposit represents a home loan," the joint letter stated, warning that the proposed fix would "negate the goals of the upfront prohibition" by directly tying rewards to the duration and size of a customer's holdings .

This legislative gridlock has effectively halted progress on the broader Clarity Act, which aims to define whether digital assets are securities or commodities. Following the banking groups' rejection of the Senate compromise, the bill remains stalled in the Senate Banking Committee. Observers note that the White House has hosted multiple "productive" meetings between crypto executives and bank CEOs, but no breakthrough has been achieved as the political calendar narrows ahead of the next election cycle .

Expert Response: The Academic View

Professor Omid Malekan from Columbia Business School argues that the banks are fighting a losing battle against technological efficiency. He contends that tokenized bank deposits are inherently inferior to stablecoins due to a lack of "composability"—the ability to be used freely across different software applications. "Tokenized deposits are like a checking account where you could only write checks to other customers of the same bank… What is the point?" Malekan asked. He suggests that attempts to ban yield are futile, as crypto firms will inevitably find ways to share profits with users, forcing banks to adapt or become obsolete .

Expert Response: The Industry Response

Conversely, NYU Professor Austin Campbell has criticized the banking lobby for using political pressure to protect an outdated business model at the expense of the consumer. "The resistance to yield-bearing stablecoins from the banking lobby drew criticism... for using political pressure to protect its financial interests at the cost of retail customers," Campbell noted . However, Campbell also acknowledges that for stablecoins to truly replace traditional giants like Visa and Mastercard, the industry must integrate robust consumer protections, including fraud reversal and chargeback capabilities, which are currently lacking in most crypto wallets .

As the stalemate continues, executives like Mike Belshe of BitGo urge lawmakers to separate the stablecoin yield debate from the market structure bill, warning that the industry is running out of time for regulatory clarity in the United States . For now, the Senate has not scheduled a new vote, leaving the future of crypto regulation and the safety of bank deposits hanging in a precarious balance.